Startup Terms Glossary: 35 Definitions Every Founder Should Know

How to use this glossary

This is a plain-language reference for the terms founders meet in their first two years: cash metrics, funding rounds, cap table mechanics, growth metrics, and exits. Every definition is one or two sentences, written to stand alone — you can quote any of them without the surrounding context.

Terms are grouped by theme rather than alphabetically, because that's how they're actually used: runway lives next to burn rate, SAFE next to valuation cap. Where a term has a full guide on this blog, the related posts at the bottom go deeper.

Cash and runway terms

Runway: the number of months a startup can keep operating with its current cash, calculated as cash on hand divided by monthly net burn. A company with $300K in the bank burning $30K a month has 10 months of runway.

Burn rate: the amount of cash a startup spends per month. Gross burn is total monthly spend; net burn is spend minus revenue — the number that actually drives runway.

Cash burn: the actual cash lost over a period, measured from bank balances: (cash at period start − cash at period end) ÷ months. It's the realized version of burn rate.

Burn multiple: net burn divided by net new ARR over the same period — how many dollars a company burns to add one dollar of recurring revenue. Under 1.5 is strong; above 3 signals growth is being bought, not earned.

Default alive / default dead: Paul Graham's test — with current growth and burn, does the company reach profitability before cash runs out? Default alive means fundraising is a choice; default dead means it's a requirement.

Bridge round: a small interim financing, usually from existing investors, meant to extend runway to a milestone or the next full round. Frequent bridges are read as a signal the plan isn't converging.

Zero cash date: the calendar date when cash runs out at current burn — the same information as runway, expressed as a deadline instead of a duration.

Funding round terms

Pre-seed: the first outside capital, typically $100K–$1M, invested in a team and a thesis before meaningful traction exists. It usually comes from angels, micro funds, and accelerators.

Seed: the round that finances the search for product-market fit, typically $1M–$4M, raised when a working product and early customer signals exist.

Series A: institutional financing for scaling a proven growth engine, typically $8M–$15M or more, led by a fund that takes a board seat and expects a repeatable path to growth.

SAFE (Simple Agreement for Future Equity): a Y Combinator-designed instrument where money comes in now and converts to shares at the next priced round, usually at a discount or valuation cap. It postpones the valuation conversation but not the dilution.

Convertible note: like a SAFE but legally a loan — it carries interest and a maturity date before converting to equity.

Priced round: an equity financing where the company's valuation is set explicitly and shares are issued at that price, making dilution visible on day one.

Valuation cap: the maximum valuation at which a SAFE or note converts, protecting early investors from being diluted by a high next-round price.

Pre-money / post-money valuation: the company's value before and after new money comes in; post-money equals pre-money plus the amount raised. A $2M raise at $8M pre-money is $10M post-money and 20% dilution.

Down round: a financing at a lower valuation than the previous round — dilutive, morale-heavy, and sometimes trigger for anti-dilution clauses.

Cap table terms

Cap table (capitalization table): the ledger of who owns what percentage of the company — founders, investors, employees — including options and instruments that will convert later.

Dilution: the reduction in existing shareholders' ownership percentage when new shares are issued. Each funding round typically dilutes existing holders by 10–20%.

Option pool: shares reserved for employee equity compensation, typically 10–15% of the company. Investors usually require it topped up before they invest, which dilutes existing holders.

Vesting: earning equity over time rather than all at once — the standard is four years with a one-year cliff, meaning nothing vests until month twelve, then monthly.

Cliff: the initial period of a vesting schedule during which no equity vests; leaving before the cliff means leaving with nothing.

Liquidation preference: the investor's right to get their money back (often 1x) before common shareholders see anything in an exit. Multiple stacked preferences can consume most of a modest exit.

Pro-rata rights: an investor's right to invest in later rounds to maintain their ownership percentage.

Growth and PMF terms

Product-market fit (PMF): the point where a product satisfies strong market demand — visible in behavior like retention that flattens instead of decaying, organic referrals, and customers who complain when the product is down.

MRR / ARR: monthly and annual recurring revenue — the subscription revenue that repeats without being re-sold. ARR is simply MRR × 12 for subscription businesses.

Net new ARR: new ARR from new customers, plus expansion from existing ones, minus churn and contraction — the denominator of burn multiple.

Churn: the revenue or customers lost in a period. High churn means the bucket leaks as fast as marketing fills it.

Retention: the share of customers or revenue that stays over time; cohort retention curves that flatten are the strongest single PMF signal.

NRR (net revenue retention): revenue from an existing customer cohort this year divided by the same cohort's revenue last year. Above 100% means the base grows even with zero new customers.

CAC (customer acquisition cost): total sales and marketing spend divided by new customers acquired in the period.

LTV (lifetime value): the total gross profit a customer generates before churning; healthy SaaS aims for LTV at least 3× CAC.

CAC payback period: how many months of a customer's gross profit it takes to recover their acquisition cost; under 12 months is the common early-stage target.

Efficiency terms

Unit economics: the profit or loss of serving one unit — one customer, one order — independent of company overhead. Negative unit economics don't improve with scale; they compound.

Gross margin: revenue minus the direct cost of delivering it, as a percentage. Software typically runs 70–90%; services-heavy models much lower.

Rule of 40: a health check for SaaS — revenue growth rate plus profit margin should exceed 40%. A company growing 60% can burn 20%; one growing 10% should be near profitable.

Capital efficiency: how much value a company creates per dollar of capital consumed — the umbrella idea that burn multiple, CAC payback, and Rule of 40 each measure from a different angle.

Exit terms

Exit: any event that converts equity into cash or liquid stock — an acquisition, a buyout, or an IPO.

Acquihire: an acquisition made primarily for the team rather than the product or revenue; common when the product didn't win but the people did.

IPO (initial public offering): listing the company's shares on a public exchange — the rarest exit and the only one that keeps the company independent.

Secondary sale: existing shareholders (often founders or early employees) selling their shares to new investors without the company issuing new stock.

Term sheet: the non-binding summary of a deal's key terms — valuation, preferences, board seats — negotiated before the binding legal documents.

Seeing the terms in action

Definitions stick when they're attached to consequences. In Founder Runway — a free browser startup simulation — most of this glossary is playable: runway and burn move with every decision, rounds dilute your cap table, PMF signal responds to focus, and exits price the whole history of your choices.

Reading the definition of dilution takes ten seconds; watching your stake drop from 80% to 52% across two badly-timed rounds is what makes it permanent.

Conclusion

Vocabulary is leverage: founders who use these terms precisely read faster, negotiate better, and get taken more seriously in investor conversations. Bookmark this page, and when a term deserves more than two sentences, the related guides below go deep on runway, burn, funding rounds, and cap table mechanics.